Elbit Systems Reports First Quarter 2019 Results

Backlog of orders at $9.7 billion; Revenues at $1,022 million; Non-GAAP net income of $66 million; GAAP net income of $50 million; Non-GAAP net EPS of $1.54; GAAP net EPS of $1.18

PR Newswire

HAIFA, Israel, May 28, 2019 /PRNewswire/ — Elbit Systems Ltd. (NASDAQ: ESLT) (TASE: ESLT), (the “Company”) the international high technology company, reported today its consolidated results for the quarter ended March 31, 2019.

In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company’s business results and trends. Unless otherwise stated, all financial data presented is GAAP financial data.

Management Comment:

Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented: “The results of the first quarter of 2019 mark the first full quarter that includes the results of IMI. I am pleased with our results, especially the 25% growth in revenue with a well-diversified global presence in which our major geographic regions grew on an absolute basis. Our economies of scale enabled us to maintain a similar level of operating margins despite lower gross margins following the IMI acquisition. The significant increase in our backlog and the progress in the integration of IMI into the Company, support our long-term growth potential.”

First quarter 2019 results:

Revenues in the first quarter of 2019 were $1,021.7 million, as compared to $818.5 million in the first quarter of 2018. The strong growth was mainly driven by the consolidation of IMI and Universal performance in the first quarter of 2019.

Non-GAAP (*) gross profit amounted to $283.4 million (27.7% of revenues) in the first quarter of  2019, as compared to $239.8 million (29.3% of revenues) in the first quarter of 2018. GAAP gross profit in the first quarter of 2019 was $277.6 million (27.2% of revenues), as compared to $235.4 million (28.8% of revenues) in the first quarter of 2018.

Research and development expenses, net were $77.4 million (7.6% of revenues) in the first quarter of 2019, as compared to $68.2 million (8.3% of revenues) in the first quarter of 2018.

_____________
* see page 3

Marketing and selling expenses, net were $71.8 million (7% of revenues) in the first quarter of 2019, as compared to $68.2 million (8.3% of revenues) in the first quarter of 2018.

General and administrative expenses, net were $53.6 million (5.2% of revenues) in the first quarter of 2019, as compared to $35.7 million (4.4% of revenues) in the first quarter of 2018.

Other operating income, net was $1.2 million in the first quarter of 2019, due to a gain resulting from an investment and remeasurement of the Company in a subsidiary.

Non-GAAP(*) operating income was $84.0 million (8.2% of revenues) in the first quarter of  2019, as compared to $69.4 million (8.5% of revenues) in the first quarter of  2018.  GAAP operating income in the first quarter of  2019 was $76.0 million (7.4% of revenues), as compared to $63.3 million (7.7% of revenues) in the first quarter of 2018.

Financial expenses, net were $13.9 million in the first quarter of 2019, as compared to $10.2 million in the first quarter of 2018. Financial expenses, net in the first quarter of 2019, include exchange rate differences of approximately $9.3 million related to the recognition of lease liabilities denominated in foreign currencies (mainly in New Israeli Shekels) as a result of the adoption of ASC 842, Leases, effective January 1, 2019.

Other (expenses) income, net were $3.4 million in the first quarter of 2019, mainly due to the non-service cost components of pension plans, in accordance with ASU 2017-07.

Taxes on income were $10.1 million (effective tax rate of 17.2%) in the first quarter of 2019, as compared to $6.4 million (effective tax rate of 12.0%) in the first quarter of 2018.

Equity in net earnings of affiliated companies and partnerships was $2.2 million (0.2% of revenues) in the first quarter of 2019, as compared to $3.1 million (0.4% of revenues) in the first quarter of 2018.

Net income attributable to non-controlling interests was $0.4 million in the first quarter of  2019, as compared to $0.2 million in the first quarter of 2018.

Non-GAAP(*) net income attributable to the Company’s shareholders in the first quarter of 2019 was $65.8 million (6.4% of revenues), as compared to $55.1 million (6.7% of revenues) in the first quarter of 2018. GAAP net income attributable to the Company’s shareholders in the first quarter of 2019 was $50.5 million (4.9% of revenues), as compared to $49.6 million (6.1% of revenues) in the first quarter of 2018.

Non-GAAP(*) diluted net earnings per share attributable to the Company’s shareholders were $1.54 for the first quarter of 2019, as compared to $1.29 for the first quarter of 2018. GAAP diluted earnings per share in the first quarter of 2019 were $1.18, as compared to $1.16 for the first quarter of 2018.

The Company’s backlog of orders as of March 31, 2019 totaled $9,658 million as compared to $8,046 million as of March 31, 2018. Approximately 59% of the current backlog is attributable to orders from outside Israel. Approximately 61% of the current backlog is scheduled to be performed during 2019 and 2020.

Operating cash flow generated in the three months ended March 31, 2019 was $46.5 million, as compared to $147.9 million used in the three months ended March 31, 2018.

_____________
* see page 3

Adoption of New Accounting Standard:

The Company adopted Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), effective January 1, 2019, using a modified retrospective transition method. Consequently, periods prior to January 1, 2019 are not restated for the adoption of ASU 2016-02.

Leases (ASC 842), as amended, requires lessees to recognize a Right of Use (“ROU”) asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. We adopted ASU 2016-02 using the optional transition method whereby we applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment.

We recognized approximately $370 million of ROU operating lease assets and lease liabilities as a result of adopting this standard. As part of our adoption, we elected all of the available practical expedients with the exception of the practical expedient permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets. The adoption of the standard increased our financial expenses in the first quarter of 2019, in the amount of $9.3 million as a result of exchange rate differences on lease liabilities denominated in foreign currencies (mainly NIS). The comparative periods have not been restated for the adoption of ASU 2016-02.

* Non-GAAP financial data:

The following non-GAAP financial data is presented to enable investors to have additional information on the Company’s business performance as well as a further basis for periodical comparisons and trends relating to the Company’s financial results. The Company believes such data provides useful information to investors by facilitating more meaningful comparisons of the Company’s financial results over time. Such non-GAAP information is used by the Company’s management to make strategic decisions, forecast future results and evaluate the Company’s current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.

The non-GAAP financial data includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, the Company factors out items such as those that have a non-recurring impact on the income statements, various non-cash items, including significant exchange rate differences, significant effects of retroactive tax legislation and changes in accounting guidance and other items, which in management’s judgment, are items that are considered to be outside of the review of core operating results.

In the Company’s non-GAAP presentation, the Company made certain adjustments, as indicated in the table below.

These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.

 

Reconciliation of GAAP to Non-GAAP (Unaudited) Supplemental Financial Data:
(US Dollars in millions)

Three Months Ended
 March 31,

Year Ended
December 31,

2019

2018

2018

GAAP gross profit

$

277.6

$

235.4

$

976.2

Adjustments:

Amortization of purchased intangible assets

5.8

4.4

19.1

Expenses related to IMI acquisition

66.6

Non-GAAP  gross profit

$

283.4

$

239.8

$

1,061.9

Percent of revenues

27.7

%

29.3

%

28.8

%

GAAP operating income

$

76.0

$

63.3

$

292.8

Adjustments:

Amortization of  purchased intangible assets

9.2

6.1

26.5

Expenses related to IMI acquisition

 

66.8

Gain from changes in holdings

(1.2)

(45.4)

Non-GAAP operating income

$

84.0

$

69.4

$

340.7

Percent of revenues

8.2

%

8.5

%

9.2

%

GAAP net income attributable to Elbit Systems’ shareholders

$

50.5

$

49.6

$

206.7

Adjustments:

Amortization of purchased  intangible assets

9.2

6.1

26.5

Expenses related to IMI acquisition

 

66.8

Impairment of investment

17.6

Exchange rate differences (*)

 

 

8.5

0.2

3.4

Gain from changes in holdings

(1.2)

(45.4)

Related tax benefits

(1.2)

(0.8)

(8.1)

Non-GAAP  net income attributable to Elbit Systems’ shareholders

$

65.8

$

55.1

$

267.5

Percent of revenues

6.4

%

6.7

%

7.3

%

GAAP diluted net EPS

$

1.18

$

1.16

$

4.84

Adjustments, net

0.36

0.13

1.42

Non-GAAP diluted net EPS

$

1.54

$

1.29

$

6.26

(*) Exchange rate differences in the first quarter of  2019 included exchange rate differences of $ 9.3 million on lease contracts as a result of the implementation of ASC 842, effective as of January 1, 2019, as well as other assets and liabilities denominated in non U.S. dollars.

 

Recent Events:

On March 27, 2019, the Company announced that it was awarded an approximately $125 million (approximately NIS 460 million) contract from the Israeli Ministry of Defense to supply fully automatic self-propelled howitzer gun systems to the Israeli Defense Forces. The contract, which also includes the supply of training simulators, will be performed over a 12-year period.

On April 5, 2019, the Company announced that its U.S. subsidiary, Elbit Systems of America, LLC, signed a definitive agreement with Harris Corporation (“Harris”) for the acquisition of Harris’ Night Vision business for a purchase price of $350 million. The transaction is conditioned on completion of Harris’ proposed merger with L3 Technologies, Inc, as well as customary closing conditions, including receipt of regulatory approvals.

On April 9, 2019, the Company announced that it obtained the commitment of several institutional investors in Israel to purchase 1,408,921 ordinary shares of the Company, par value 1.0 New Israeli Shekel (“NIS”) per share (the “Offered Shares”), at a purchase price per Offered Share of approximately NIS 472 (approximately $132 million), for gross proceeds of approximately NIS 665 million (approximately $186 million). The Offered Shares were held by the Company as treasury shares.

On April 11, 2019, the Company announced that it was awarded an approximately $30 million contract to supply STYLET, a precise Guided Mortar Munition to a country in Asia-Pacific. The contract will be performed over a two-year period.

On May 26, 2019, the Company announced that it was awarded a $127 million contract to supply vehicular tactical radio systems to the Army of a country in South Asia. The contract will be performed over a three-year period.

Dividend:

The Board of Directors declared a dividend of $0.44 per share for the first quarter of 2019. The dividend’s record date is June 7, 2019. The dividend will be paid from income generated as Preferred Income (as defined under Israel tax laws), on June 24, 2019, net of taxes and levies, at the rate of 20%.

Conference Call:

The Company will be hosting a conference call on Tuesday, May 28, 2019 at 9:00 a.m. Eastern Time. On the call, management will review and discuss the results and will be available to answer questions.

To participate, please call one of the teleconferencing numbers that follow. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Numbers: 1-888-407-2553

Canada Dial-in Numbers: 1-888-604-5839

UK Dial-in Number: 0-800-917-5108

ISRAEL Dial-in Number: 03-918-0610

INTERNATIONAL Dial-in Number:  +972-3-918-0610

at: 9:00 am Eastern Time; 6:00 am Pacific Time; 2:00 pm UK Time; 4:00 pm Israel Time

This call will also be broadcast live on Elbit Systems’ web-site at http://www.elbitsystems.com. An online replay will be available from 24 hours after the call ends.

Alternatively, for two days following the call, investors will be able to dial a replay number to listen to the call. The dial-in numbers are:

1-888-782-4291 (US and Canada) or +972-3-925-5925 (Israel and International).

About Elbit Systems

Elbit Systems Ltd. is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of airborne, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (“C4ISR”), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and munitions. The Company also focuses on the upgrading of existing platforms, developing new technologies for defense, homeland security and commercial aviation applications and providing a range of support services, including training and simulation systems.

For additional information, visit: www.elbitsystems.com or follow us on Twitter.

Attachments:

Consolidated balance sheets
Consolidated statements of income
Consolidated statements of cash flow
Consolidated revenue distribution by areas of operation and by geographical regions

 

 

Company Contact:

Joseph Gaspar, Executive VP & CFO

Tel:  +972-772946663

j.gaspar@elbitsystems.com

David Vaaknin, VP, Head of Corporate Communications

Tel: +972-772946691

david.vaaknin@elbitsystems.com

Elbit Systems Ltd.

IR Contact:

 

Ehud Helft

Kenny Green

GK Investor Relations

Tel: +1-646-201-9246

elbitsystems@gkir.com

 

 

This press release contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1943, as amended) regarding Elbit Systems Ltd. and/or its subsidiaries (collectively the Company), to the extent such statements do not relate to historical or current fact. Forward-looking statements are based on management’s expectations, estimates, projections and assumptions. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results, performance and trends may differ materially from these forward-looking statements due to a variety of factors, including, without limitation: scope and length of customer contracts; governmental regulations and approvals; changes in governmental budgeting priorities; general market, political and economic conditions in the countries in which the Company operates or sells, including Israel and the United States among others; differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts; and the outcome of legal and/or regulatory proceedings. The factors listed above are not all-inclusive, and further information is contained in Elbit Systems Ltd.’s latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission. All forward-looking statements speak only as of the date of this release. The Company does not undertake to update its forward-looking statements.

Elbit Systems Ltd., its logo, brand, product, service and process names appearing in this Press Release are the trademarks or service marks of Elbit Systems Ltd. or its affiliated companies.  All other brand, product, service and process names appearing are the trademarks of their respective holders.  Reference to or use of a product, service or process other than those of Elbit Systems Ltd. does not imply recommendation, approval, affiliation or sponsorship of that product, service or process by Elbit Systems Ltd. Nothing contained herein shall be construed as conferring by implication, estoppel or otherwise any license or right under any patent, copyright, trademark or other intellectual property right of Elbit Systems Ltd. or any third party, except as expressly granted herein.

(FINANCIAL TABLES TO FOLLOW)

 

 

ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars)

March 31, 2019

December 31, 2018

Unaudited

Audited

Assets

Current assets:

Cash and cash equivalents

$

184,659

$

208,479

Short-term bank deposits and restricted deposits

12,003

16,447

Premises evacuation

334,125

Trade and unbilled receivables and contract assets, net

1,686,862

1,712,915

Other receivables and prepaid expenses

194,039

199,148

Inventories, net

1,214,498

1,141,996

Total current assets

3,626,186

3,278,985

Investments in affiliated companies and partnerships and other companies

196,481

196,180

Long-term trade and unbilled receivables and contract assets

255,284

297,145

Premises evacuation

39,231

365,436

Long-term bank deposits and other receivables

44,324

42,962

Deferred income taxes, net

43,220

42,804

Severance pay fund

295,347

278,732

873,887

1,223,259

Operating lease right of use assets

359,652

Property, plant and equipment, net

695,514

686,620

Goodwill and other intangible assets, net

1,285,659

1,261,921

Total assets

$

6,840,898

$

6,450,785

Liabilities and Equity

Short-term bank credit and loans

$

167,841

$

208,821

Current maturities of long-term loans and Series A Notes

405,059

62,546

Operating lease liabilities

 

55,758

Trade payables

708,791

776,100

Other payables and accrued expenses

1,103,404

1,081,992

Contract liabilities

850,592

780,994

3,291,445

2,910,453

Long-term loans, net of current maturities

127,346

467,649

Series A Notes, net of current maturities

58,498

56,303

Employee benefit liabilities

762,006

736,798

Deferred income taxes and tax liabilities, net

83,738

78,677

Operating lease liabilities

 

310,234

Contract liabilities

118,561

175,890

Other long-term liabilities

182,759

170,607

1,643,142

1,685,924

Elbit Systems Ltd.’s equity

1,883,856

1,832,453

Non-controlling interests

22,455

21,955

Total equity

1,906,311

1,854,408

Total liabilities and equity

$

6,840,898

$

6,450,785

 

 

ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US Dollars, except for share and per share amount)

Three Months Ended
 March 31,

Year Ended
December 31,

2019

2018

2018

Unaudited

Audited

Revenues

$

1,021,723

$

818,528

$

3,683,684

Cost of revenues

744,101

583,104

2,707,505

Gross profit

277,622

235,424

976,179

Operating expenses:

Research and development, net

77,354

68,185

287,352

Marketing and selling, net

71,832

68,168

281,014

General and administrative, net

53,640

35,740

160,348

Other operating income, net

(1,234)

(45,367)

Total operating expenses

201,592

172,093

683,347

Operating income

76,030

63,331

292,832

Financial expenses, net(*)

(13,925)

(10,248)

(44,061)

Other (expenses) income, net

(3,430)

22

(11,449)

Income before income taxes

58,675

53,105

237,322

Taxes on income

(10,099)

(6,362)

(26,445)

48,576

46,743

210,877

Equity in net earnings (losses) of affiliated companies and partnerships

2,247

3,134

(2,222)

Net income

$

50,823

$

49,877

$

208,655

Less: net income attributable to non-controlling interests

(366)

(243)

(1,917)

Net income attributable to Elbit Systems Ltd.’s shareholders

$

50,457

$

49,634

$

206,738

Earnings per share attributable to Elbit Systems Ltd.’s shareholders:

Basic net earnings per share

$

1.18

$

1.16

$

4.84

Diluted net earnings per share

$

1.18

$

1.16

$

4.84

Weighted average number of shares (in thousands)

Shares used in computation of basic earnings per share

42,753

42,751

42,753

Shares used in computation of diluted earnings per share

42,756

42,753

42,753

(*) Financial expenses in the first quarter of  2019 included exchange rate differences of $9.3 million on lease contracts as a result of the implementation of ASC 842.

 

 

ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of US dollars) 

Three Months Ended
 March 31,

Year Ended
December 31,

2019

2018

2018

Unaudited

Audited

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

50,823

$

49,877

$

208,655

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

33,206

27,766

118,205

Adjustment to fair value investment

13,334

Stock-based compensation

1,090

1,387

Amortization of Series A Notes premium and related issuance costs, net

(23)

(23)

(92)

Deferred income taxes and reserve, net

4,072

2,612

13,724

Loss (gain) on sale of property, plant and equipment

(459)

(37)

2,080

Loss (gain) on sale and revaluation of investments

116

620

(41,822)

Equity in net earnings of affiliated companies and partnerships, net of dividend received (*)

(897)

(1,845)

17,929

Changes in operating assets and liabilities, net of amounts acquired:

Decrease (increase) in short and long-term trade and unbilled receivables and contract assets and prepaid expenses

62,262

22,659

(89,099)

Increase in inventories, net

(72,062)

(85,896)

(117,221)

Decrease in trade payables, other payables and accrued expenses

(48,830)

(149,991)

(89,956)

Severance, pension and termination indemnities, net

5,126

1,336

(31,363)

Increase (decrease) in contract liabilities

12,093

(14,952)

185,898

Net cash provided by (used in) operating activities

46,517

(147,874)

191,659

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment and other assets

(27,140)

(25,267)

(102,301)

Acquisition of subsidiaries and business operations

(5,601)

(4,000)

(504,447)

Investments in affiliated companies and other companies

(1,350)

(350)

(7,538)

Deconsolidation of subsidiary

(2,873)

Proceeds from sale of property, plant and equipment

983

233

4,388

Investment in long-term deposits

(141)

(183)

Proceeds from sale of long-term deposits

82

Investment in short-term deposits and marketable securities

(15,649)

(2,835)

(10,361)

Proceeds from sale of short-term deposits and marketable securities

20,584

13,484

30,363

Net cash used in investing activities

(28,173)

(18,876)

(592,870)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from exercise of options

48

48

Repayment of long-term loans

(893)

(14)

(775)

Proceeds from long-term loans

340,000

342,528

Repayment of Series A Notes

(55,532)

Dividends paid

(75,305)

Change in short-term bank credit and loans, net

(41,271)

(114,863)

242,652

Net cash (used in) provided by financing activities

(42,164)

225,171

453,616

Net increase (decrease) in cash and cash equivalents

(23,820)

58,421

52,405

Cash and cash equivalents at the beginning of the year

208,479

156,074

156,074

Cash and cash equivalents at the end of the period

$

184,659

$

214,495

$

208,479

* Dividend received from affiliated companies and partnerships

$

1,350

$

1,289

$

15,707

 

 

ELBIT SYSTEMS LTD.
DISTRIBUTION OF REVENUES

Consolidated Revenues by Areas of Operation:

Three Months Ended March 31,

Year Ended December 31,

2019

2018

2018

$ millions

%

$ millions

%

$ millions

%

Airborne systems

368.3

36.1

311.0

38.0

1,470.1

39.9

C4ISR systems

243.6

23.8

275.2

33.6

1,130.1

30.7

Land systems

303.4

29.7

114.4

14.0

649.1

17.6

Electro-optic systems

77.9

7.6

88.0

10.8

333.9

9.1

Other (mainly non-defense engineering and production services)

28.5

2.8

29.9

3.6

100.5

2.7

Total

1,021.7

100.0

818.5

100.0

3,683.7

100.0

 

 

Consolidated Revenues by Geographical Regions:

Three Months Ended March 31,

Year Ended December 31,

2019

2018

2018

$ millions

%

$ millions

%

$ millions

%

Israel

261.9

25.6

185.6

22.7

740.2

20.1

North America

275.6

27.0

208.7

25.5

979.2

26.6

Europe

196.5

19.2

152.7

18.7

737.1

20.0

Asia-Pacific

216.6

21.2

173.6

21.2

791.8

21.5

Latin America

31.8

3.1

40.2

4.9

192.4

5.2

Other countries

39.3

3.9

57.7

7.0

243.0

6.6

Total

1,021.7

100.0

818.5

100.0

3,683.7

100.0

 

 

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SOURCE Elbit Systems Ltd